Liberty Latin America Ltd. (LILA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. Today's call is being recorded. I'll now turn the call over to Britta Reinhardt, Chief Commercial Officer, B2C Liberty Caribbean.

Good morning, and welcome to Liberty Latin America's Second Quarter 2026 Investor Call. Today's formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at www.lla.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this call is being recorded. Today's remarks may include forward-looking statements, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact. Actual results may differ materially from those expressed or implied by these statements. For more information, please refer to the risk factors discussed in Liberty Latin America's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q, along with the associated press release. Liberty Latin America disclaims any obligation to update any forward-looking statements or information to reflect any change in its expectations or in the conditions on which any such statement or information is based. In addition, on this call, we will refer to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP financial measures, which can be found in the appendices to this presentation, which is accessible under the Investors section of our website. I would now like to turn the call over to our CEO, Mr. Balan Nair.

Thank you, Britta, and welcome, everyone, to Liberty Latin America's Second Quarter 2026 Results Presentation. I will be running through our group highlights and an overview of our operating results before Chris Noyes, our CFO, reviews the company's financial performance. We'll then get straight to your questions. As always, I'm joined by my executive team from across our operations, and I'll invite them to contribute as needed during the Q&A following our prepared remarks. As a point of housekeeping, we will both be working from slides, which you can find on our website at www.lla.com. Starting on Slide 4 and our highlights. The second quarter showed continued solid operational trends across large parts of the business. We added 45,000 mobile postpaid and broadband subscribers in the second quarter, with all segments reporting positive contributions. Strong postpaid mobile trends have become a feature of our results. And this quarter, we were also pleased to see improvements in broadband subscriber adds with momentum that extended across markets beyond the recovery in Jamaica. We reported 3% year-over-year rebased adjusted OIBDA growth in the second quarter. This represents an acceleration on Q1 trends and sets us up for a strong second half. We also reported another improvement in adjusted free cash flow before distribution to partners, which for the first half of 2026 was materially higher than in the same period last year. We already have cost efforts in flight, but we are excited. Additionally, we have announced yesterday an AI-driven cost-optimizing IT services deal with Amdocs. This agreement will help sustain continued investment in AI capabilities, innovation and digital transformation, and it will help drive further material OpEx and CapEx reductions going forward as we strive to continue expanding both adjusted OIBDA margins and adjusted OIBDA less P&E addition margins over the coming years. We estimate the NPV value of this deal to be worth north of $250 million. Following our announced intention at the time of our Q1 earnings, we successfully completed the distribution of $500 million in preferred stock. This represents an attractive cash return for shareholders who have held on to the paper. In addition, it represents us leaning into the levered equity model as we have added gearing to the common equity. This distribution should therefore be read as an indication of our growing confidence in the prospects of our business over the coming years. Turning to share repurchases. We have continued purchasing our common equity through Q2 and more actively in July. We continue to see a discount to fair value on our common stock. In part, we feel this persists given perceived headwinds from Puerto Rico despite a clear commitment to fund Liberty Puerto Rico through local assets as exemplified by our recent financing activities. However, we remain focused on value opportunity and appropriate capital allocation more broadly across the group, noting our recent sale agreement in Peru. Turning now to our operations. On Slide 5, we review our Liberty Caribbean segment. While we continue to see negative headwinds from Hurricane Melissa and Jamaica, the effect is clearly diminishing. On the top left of the slide, we show how Liberty Caribbean's postpaid subscriber base continued to expand, adding 11,000 postpaid subscribers, of which 6,000 were delivered in Jamaica in the second quarter and with a healthy contribution from our South Caribbean markets. In June, we were the first operator to launch 5G in Jamaica. The service covers approximately 70% of the population and is available to our postpaid subscribers, both on the residential and enterprise side and should help maintain postpaid momentum. Our market-leading FMC offers continue to drive postpaid growth as we increase the penetration of our existing fixed subscriber base. We are also excited about our latest initiative in the Caribbean, Unbeatable Network, which is focused on the quality assurance of our fixed network as well as mobile connectivity enhancements, helping to further drive FMC adoption. The Unbeatable campaign is now live in Jamaica and Cayman and coming soon to other Liberty Caribbean markets as well as being deployed across the broader LLA Group. In the Caribbean, it encompasses the unique concept of an always-on network, both in fixed and mobile. On the one hand, fixed broadband is backed up by an automatic and seamless transition from home WiFi to the mobile network to manage power outages, further supported by WiFi 6, improved Smart WiFi for improved in-home connectivity. On the other hand, mobile connectivity is backed up by satellite through our Starlink DTC partnership. On the bottom left of the slide, we show how the Internet net adds performance have been quite consistent. It is worth noting that the net adds figures exclude off-line subscribers reconnected in the period in Jamaica. As a reminder, these were off-line customers we retained in our subscriber count through the outage period who are now back on the network and once again revenue generating. In Jamaica specifically, we continue to recover revenue to its pre-hurricane levels. This reflects a combination of recovery in residential fixed and B2B as well as a stronger performance in mobile. Overall, Liberty Caribbean is anchored by great products, upgraded networks, stable markets and Jamaica recovery. Both our consumer and B2B segments are in good health. On Slide 6, we review Cable & Wireless Panama, which as a segment provided the highest subscriber additions in the group in Q2 across postpaid and broadband. On mobile, we continue to see postpaid as a strong driver, reporting double-digit year-over-year subscriber growth. FMC continued to increase, running at over 40%. While we see ongoing prepaid to postpaid migration, we are still also growing the prepaid subscriber base in Panama. With the industry having had some pushback on prepaid price increases in Q1, recent regulatory commentary has been more supportive on the broader pricing environment. And in July, we initiated price increases on postpaid. Initial feedback has validated this approach, so far seeing lower customer care contact volumes and reduced churn relative to historical pricing actions. To further enhance our mobile service, in the second quarter, we announced a partnership with Starlink, similar to the one we previously announced in Costa Rica. On the fixed side, we have shown a sharp increase in residential broadband subscriber adds to 10,000 in the second quarter, reflecting successful commercial activities focused on quality first, driving higher gross adds as well as a significant decline in churn versus Q1. We also registered strong net adds to both video and voice in the second quarter. As with postpaid mobile, we initiated fixed price increases in July and early feedback here has also been supportive. We look forward to the rollout of our Unbeatable Campaign in Panama, underpinned by always on WiFi in the home and strengthened with the mass Starlink launch for mobile. On B2B, we continue to see a healthy pipeline, including activity around government project delivery and execution. This is our typical cycle in B2B being second half weighted. All in all, we are growing our operating metrics. We are innovating in products, and we are setting up for a good second half in Panama. Turning to Slide 7 and Liberty Networks, which recorded the best year-over-year revenue growth across the LLA Group in Q2. On our wholesale business, we recorded an increase in revenue growth to 14% year-over-year, driven this quarter by a healthy contribution from our project in El Salvador. We have a strong and productive working relationship with the government of El Salvador and have continued to deliver on the milestones required for the successful completion of this project. More broadly in wholesale, we see continued underlying demand for subsea capacity from international and regional carriers and increasingly from hyperscalers. We are also recognizing recent changes in the geopolitical environment in Venezuela as providing opportunities to invest for further potential growth. Working alongside CANTV, we are launching Phoenix, a submarine cable system that will have an extension of 378 kilometers and will provide 14 terabytes of capacity utilizing the Americas-II route. This is a modest investment but will enable direct access to Curacao's market, which represents about half of Venezuela's total business traffic and the country's largest concentration of enterprise and carrier demand. While still early days for Venezuela, this positions Liberty Networks well with a third network connection point to support Venezuela's critical industries and a return to economic growth and broader prosperity for the country. Meanwhile, revenue growth in our enterprise business remains robust at low single-digit levels. The Liberty Networks business continues to be a strong cash generator with a unique set of assets that provide a meshed and resilient grouping of network systems that we are tally expanding with new and value-accretive routes. Turning to Slide 8 and Liberty Costa Rica, which remains one of our most dynamic markets and where cost-cutting efforts are starting to flow. On the fixed side, we continue to hold firm on volumes in the competitive fixed market, registering 2,000 broadband adds in the second quarter. Fixed ARPU remains under some pressure, though sequentially, fixed subscription revenue was relatively stable with volume support coming also from net adds to video and voice in the second quarter as we continue to nudge up our bundling ratio. On the mobile side, while we have seen somewhat more elevated competition in postpaid in recent quarters, the lighter additions performance in Q2 was additionally impacted by a planned and temporary pause as we migrated to new sales channels as part of our cost savings program. The run rate in July is already back to historic levels. We are also eagerly awaiting the commercial launch of Liberty Starlink in the second half of the year to help further differentiate our mobile offering. Anticipating this launch, we recently applied a price increase to reflect the improved offer coming soon, which will be available to the majority of our customer base. Finally, and as Chris will talk to, we are beginning to see our cost reduction initiatives in Costa Rica come through in the numbers, helping drive strong year-over-year adjusted OIBDA growth. Combined with our 5G mobile network, a nationwide 1 gigabit per second broadband network, a good economy and our focus on repositioning B2B in this market, we are positive on the second half of this year. Turning to Slide 9 and Liberty Puerto Rico. On the mobile side, we continue to advance our postpaid subscriber base, registering positive adds for the third consecutive quarter. Postpaid gross adds remain robust, while churn has improved quite significantly over the course of the first half. Our postpaid port-in data continues to improve and as of end of July, show we are net gainers versus both players in the market for the first time since the migration. Volumes here are being supported by a SIM-only offer, Liberty siempre, providing for attractive economics given the absence of subsidies. On prepaid, meanwhile, we are also seeing a more stable subscriber base. And with the Boost migration behind us, we can now turn our attention to growing this space over the coming quarters. On the residential fixed business, we continue to see better momentum through Q2. We registered a further reduction in broadband churn in Q2, having steadily improved now in each of the last 3 quarters. Fixed churn at Liberty Puerto Rico is one of the lowest across the LLA group. Gross adds meanwhile, are additionally beginning to benefit from rapid growth in the much smaller USPI business within this segment. At the start of Q3, we went live in an above-the-line campaign on Unbeatable Network in Puerto Rico. Frequent power outages on the island suggest mobile backup to fixed broadband should resonate well and further cement fixed broadband customer stickiness. We have also capitalized on our video superiority on the island. With the full lineup of local channels and a Spanish tier, we have delivered 2 consecutive quarters of positive video net adds. This turnaround is driven by both sides of the funnel. Gross adds are up approximately 50%, while churn has stabilized at healthier levels. On the back of this recovered base, we executed a $2 per month rate increase across the TV portfolio. This trend relies on the quality of the local content and volume trends here are a marked contrast to current video trends seen in other markets such as the Mainland U.S. And with that, I'll pass you over to Chris Noyes, our Chief Financial Officer, who will take you through our financial performance before we move on to your questions. Chris?

Thanks, Polin. Beginning on Slide 11. Q2 2026 revenue was $1.1 billion, up 1% reported and flat on a rebased basis, while adjusted OIBDA was $436 million in the quarter, reflecting 3% rebased growth over Q2 2025. There are a number of high-level items to point out before we dig into the specific operations. Liberty Networks was our strongest performer in the quarter, including delivery of double-digit rebased revenue growth. Liberty Caribbean's results were impacted by the aforementioned Hurricane Melissa headwinds. Residential mobile service revenue expansion continues to be a bright spot across the group as we capitalize on FMC and prepaid to postpaid migration strategies. Focused savings initiatives across the group on both direct costs and OpEx are contributing to our consolidated adjusted OIBDA margin of 40%, an approximate 130 basis points year-over-year improvement. And finally, both consolidated revenue and adjusted OIBDA grew sequentially over Q1 2026 results. Slide 12 recaps our Q2 results for the C&W credit silo, starting with Liberty Caribbean. In Q2, LC reported $362 million in revenue and $165 million in adjusted OIBDA, reflecting rebased year-over-year declines. The principal driver of declines stemmed from Hurricane Melissa, which impacted LC by roughly $6 million net across both revenue and adjusted OIBDA. Notwithstanding this headwind, our recovery continues to progress very well, and we are on tap for much improved results in Q4. A key highlight in the quarter was continued success in residential mobile as LC delivered 4% rebased revenue growth on the back of FMC and pricing actions taken in the past quarters. Next, moving to Panama. CWP generated $177 million of revenue and $65 million of adjusted OIBDA during the quarter, with revenue flat and adjusted OIBDA down 5% year-over-year. In terms of revenue, lower B2B revenue in the quarter offset modest year-over-year growth in both residential mobile and fixed, which was supported by underlying subscriber momentum in postpaid and fixed subscribers. Adjusted OIBDA was impacted by lower B2B revenue and higher professional services costs, while the margin remained healthy at 37% in Q2. Turning to Liberty Networks. LN delivered $130 million in revenue and $67 million in adjusted OIBDA, representing rebased growth of 10% and 9%, respectively. Rebased wholesale revenue increased 14%, supported by the second milestone on our El Salvador Subsea project and continued momentum in sales of lease capacity. Additionally, rebased enterprise revenue grew 3% with strength in IT services. Aggregating all 3 operating segments within the C&W credit silo, the silo generated $649 million in revenue, up 1% rebased and $297 million in adjusted OIBDA, down 2% rebased. Moving to Slide 13 and the Q2 results for our other 2 credit silos. On the left, Liberty Costa Rica. LCR delivered Q2 revenue of $169 million and adjusted OIBDA of $64 million in Q2. Rebased revenue was flat in the quarter as residential mobile revenues growth of 6% was offset by continued year-over-year declines in both residential fixed and B2B. However, relative to Q1's rebased decline in revenue, LCR did demonstrate top line improvement in the quarter. LCR delivered rebased adjusted OIBDA growth of 7% in Q2 and margin expansion of approximately 200 basis points to 38%. This strong result reflects in part the positive impact from the operating team's cost out and efficiency program. Concluding with Liberty Puerto Rico on the right. LPR posted Q2 revenue of $288 million, representing a 5% year-over-year rebased decline as both residential mobile and fixed experienced single-digit declines, while B2B was flat year-over-year. Of particular note, sequentially, residential mobile subscription revenue expanded modestly from Q1 levels as postpaid subscriber momentum takes hold and given the improvement in ARPU. Adjusted OIBDA was $93 million, up 7% year-over-year on a rebased basis, and the adjusted OIBDA margin expanded to 32%, up from 29% last year. Turning to Slide 14. On the left, P&E additions were $179 million in Q2 and $289 million year-to-date, representing 16% and 13% of revenue, respectively. As expected, Q2 spend was significantly higher than Q1 as a result of seasonality and phasing of key investment projects. We anticipate higher P&E additions in H2 compared to H1, but we still expect the full year P&E additions as a percentage of revenue to be in the same envelope as 2025. Turning to the right part of the slide. Adjusted FCF before distributions increased to $83 million in Q2 and $19 million for the first half. These results reflect increases of $124 million over Q2 2025 and $164 million over H1 2025, respectively. Drivers of this performance include stronger cash flow from operations, including improved working capital as well as vendor financing phasing. Important to note that adjusted FCF in 2026 for Puerto Rico was a negative $48 million for Q2 and a negative $91 million for H1. For LLA, our 2026 adjusted FCF before distributions remain significantly weighted to Q4 performance, consistent with phasing as in prior years. However, after more favorable working capital timing in the first half, H2 likely won't be as robust as last year's second half due in part to proceeds we received in Q4 of last year from our weather derivatives program following Hurricane Melissa. Next to Slide 15. On a consolidated basis, LLA had total debt of $8.5 billion, cash of $700 million, consolidated net leverage of 4.6x and borrowing capacity of around $900 million. Additionally, on the slide, one can see the relevant leverage and liquidity metrics for each of our stand-alone credit silos. Importantly, if we were to exclude LPR's net leverage, LLA's consolidated net leverage would fall by roughly a turn into the mid-3s. With respect to the Puerto Rico reporting group, the business continues to address its capital structure. During Q2, the business was able to utilize its own assets to secure additional funding for near-term liquidity needs. Specifically, LPR raised new financing through unrestricted subsidiaries, including a $140 million 2030 revolving credit facility, which replaces the prior RCF, which was set to mature in Q1 2027 and a $200 million senior secured term loan facility, of which $150 million has been drawn and $50 million remains available. Moving to the top right of the slide. In mid-June, LLA successfully distributed roughly $500 million of notional value preferred stock to our common shareholders. This new instrument carries a 9% annual dividend payable quarterly and represents a highly attractive return for investors. In my view, the preferred is currently trading at a wide spread to both our CW and LCR debt, and we would encourage investors to take a closer look at the security. Post preferred distribution and in line with our levered equity strategy, we have been active in repurchasing our common equity, including purchases through Q3 year-to-date, we have repurchased over $60 million of stock and have close to $140 million remaining under our authorization. No doubt, we will remain opportunistic buyers of our equity. Moving to our final slide. First, as highlighted by our results today, Q2 demonstrated continued progress. LLA reported robust postpaid mobile and broadband Internet net additions. We returned to adjusted OIBDA growth and delivered substantial year-over-year expansion in cash flow. As we look to rest of 2026, we intend to build upon our H1 operational progress and lap the October 2025 Jamaica hurricane, all of which should set us up for a strong fourth quarter and positive momentum leading into 2027. Second, on product innovation and AI, we are leaning into these areas, as Balan expressed. Not only can they help propel our top line but should complement our cost takeout initiatives while also supporting improved customer experiences. We discussed exciting examples today, including the launching of our Unbeatable Network proposition and the signing of our IT services agreement. Third, capital allocation remains a priority for us. As discussed in May, we made the decision to lean into the levered equity model and regear our equity through the distribution of the preferred stock. This was a reflection of the confidence we have in our business, our desire to offer our shareholders a compelling cash return and belief that this would unlock value for our shareholders. In closing, we remain focused on carrying out our value creation strategy over the coming quarters. This includes deliver top line performance, realize operational leverage through cost and CapEx optimization, drive free cash flow and optimize our asset portfolio as exemplified by our recently announced Peruvian exit. Taken together, all of these items, combined with our capital allocation approach, should help us close what we believe is a discount to our intrinsic value and further enhance shareholder returns. With that, operator, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Matthew Harrigan with Benchmark StoneX.

I guess, firstly, you kind of have not depressed but depression valuations in U.S. cable stocks on account of Starlink, particularly with Charter. How is your position there differentiated? I mean you kind of regard them as a frenemy and got interesting partnership. And how does that partnership evolve over time, particularly when you get version 3 coming out? And obviously, you've done some things on spectrum already, but just a broad comment. And then I have one other question, and I'll slide back into the queue.

Sure. Thanks, Matthew. On the Starlink relationship one, we're very positive on it. It helps bolster our products and makes the customer experience so much better. The way we look at this relationship is that it's an add-on to our existing product line. And I think what's unique in our market compared to others is, one, of course, as you pointed out, the spectrum availability. Two, remember, we are literally one of the largest employers in many of the markets that we operate in. And the government partners that we have and local authorities understand that, and they understand that companies like ours actually contribute significantly to the economy of these businesses -- of these countries. And therefore, in a certain way, I think most of these markets are more ring-fenced than other markets where these satellite operators operate in. And so I think even in the long term, we see all the satellite guys as more partners and fill-in-the-blank type role as opposed to wholesale or large replacements of facilities actually on the ground.

And I guess the second question, on Liberty Networks, and I know the business is lumpy as has been shown in the past and you're careful to point out to people. But it just feels like the growth curve is just really accelerating now. Venezuela, obviously, in the hopper, just market by market, El Salvador. And I know a few years ago, people were looking at the infrastructure investments and private equity and all that and say, well, you could have a high-teen, mid-teen type multiple in that business. And even if you don't have a financial engineering event, it feels like you could have a really nice growth path there. I mean, do you have any internal goals that maybe not formal goals, but any animations on high single-digit, maybe even low double-digit growth in that business for the rest of the decade? Because it just feels like there's just a cornucopia of activity there to say the least.

I think your instincts are correct on that for sure, which is why we kind of doubled down on the number of builds, the one coming out of Colombia into Mexico, Panama coming back to Florida. We also have, on the Pacific side, building out the El Salvador route. And as I mentioned earlier, we're building in new routes into Venezuela. We're quite bullish on that. And there are other opportunistic routes that we could be looking at as well. These are -- the reason we really like this and why it's also considered infrastructure is the cash conversion on this business is extremely high. And the operating contribution margins are extremely high because when we build all these new routes, yes, we do spend the CapEx on it, but it doesn't increase our OpEx significantly. We have a couple of really strong managers, of course, led by Ray Collins, Carmine, Danilo. There's a number of really strong managers we've moved over into this business unit because we think that not only because the opportunity is really good here, but we think as well, structurally, I think this is one we're going to lean in even more because clearly, it gives us a much better return than our existing consumer business.

Your next question comes from the line of Ernesto Gonzalez with Morgan Stanley.

It's 2. First one is on the pace of execution of the remainder of the buyback program. Any comment on your thoughts on this would be greatly appreciated. And the second one is on Puerto Rico. Any updates on the strategic initiatives, including the potential spin-off of the unit?

On the buyback, as Chris pointed out, we are going to be very opportunistic there. And as you can see, we really leaned in on it in the last month or so after the pref came out. And we'll continue to lean in into it. And -- but we are going to be very disciplined and smart about it. If you look at our prior stock purchases, buybacks, we've been very disciplined. And as a matter of fact, almost everything we bought to date since the inception of LLA is in the money. And we are really kind of -- and like I said, we'll be very careful about this because there's many things in front of us, right? It's buybacks, delevering, looking at very accretive M&A opportunities. And right now, you can see from the last month, buyback remains our focus. We really think our common equity is undervalued, and we're going to put our capital to work there. To your second question on LPR, Chris, I think, kind of alluded to that as well. It's work in progress. We want to be very constructive with our counterparties on the debt side. And I think the resolution could come. Certainly, we on the management team are working really hard to try to get to a resolution there. And on the spin, we indicated previously, it's just one of the key options that we have in front of us, but clearly, the Puerto Rico path today has a drag on our common equity. But listen, we've been very clear. We are not putting money into Puerto Rico. It is self-funded by the Puerto Rico operations, and we have a very strong Puerto Rico management team that is -- we've in that business quite a bit around. Operationally, it is performing. And now we just need to work with our counterparties on the debt side. And I think we can find a meeting of the minds at some point between now and next year.

Really clear. Just one follow-up. You mentioned potential M&A opportunities. Any additional color on what type of assets you could be exploring?

We would only look at assets that are accretive to our current free cash flow generation. So 2 things that we would look at, one, synergies -- significant amount of synergies that can contribute to our free cash flow; and two, a glide path in any of these businesses that provide for future revenue growth as well. Those 2 are like the key things. And then we balance it against where our stock is trading and which is the better use of our capital. Right now, I can clearly tell you there is nothing out there that we see that's a better value than our own stock.

Your next question comes from the line of Roberta Versiani with Citigroup.